O'Shaughnessy's Cornerstone Growth Screen: Beating the Market through Relative Strength and Price to Sales

In Brief

The Cornerstone Growth Screen is an impressive growth screen which combines relative strength, earnings consistency and a price-to-sales value measure.

Background 

O'Shaughnessy wrote the seminal 1996 book quot;What Works on Wall Street”. In it, the Cornerstone Growth stock screener implements a strategy he developed in the 1990s using Standard amp; Poor's Compustat database to back-test the performance of dozens of stock-picking strategies between 1954 and 1996.

He was the first to test over such a long period a large number of simple growth screens like high profit margins, high return on equity, high one year and five year earnings growth and high relative strength. His conclusion was that, with the exceptions of relative strength and earnings growth, most simple growth strategies did not compensate investors adequately for the risks involved. After studying the results, O'Shaughnessy came up with his own formula called the quot;United Cornerstonequot; strategy. This approach is a combination of two models: a momentum/earnings growth-focused method called quot;Cornerstone Growthquot; and a value-focused method called quot;Cornerstone Value.quot;. His conclusions were published in the book, What Works on Wall Street”, an in-depth quantitative stock market study and bestseller.

Does the Cornerstone Growth Screen Work?

According to “What Works on Wall Street”,...